Post navigation

Watch out Loreal. Custom hair color startup eSalon invented a better mouse trap, and has the sales to prove it

What are the odds that the biggest innovation in hair care this decade comes from a team of guys known previously for creating a price comparison site?

It’s a storyline already taking shape at Culver City-based eSalon, a six-year-old custom hair color startup founded by former PriceGrabber founders and early employees Tamim Mourad, Omar Mourad, Cory Rosenberg, and Francisco Gimenez, the latter being the company’s CEO.

A far cry from digital coupons and search engine marketing arbitrage, eSalon is a hardware and manufacturing operation that creates truly personalized and custom hair color for each of its customers. The end result more closely replicates the salon experience where professional colorists mix custom treatments for their clients, but does so with a price point ($ 20 per application), and convenience only available with over the counter boxed products.

In the four years since first launching its product to the public – after two years of R&D – eSalon has now produced 80,000 unique hair color formulations and currently has 100,000 active customers that have purchased over 1 million color applications. Roughly 85 percent of these customers receive the company’s color products on a recurring subscription, with the average frequency being every six weeks. Gimenez declined to reveal eSalon’s current revenue, but did say that the company owns about 1.5 percent of the $ 2 billion US at-home hair color market, an assertion that would put the company’s sales in the area of $ 30 million per year. The company is operating at break-even, according to Gimenez, and has 50 full-time employees and continues to grow.

It’s hard to get an appreciation for just how unique eSalon’s business is without getting a look behind the scenes at its operation. I did just that last week and walked away extremely impressed with what I saw. Behind each order is a combination of computer intelligence, live customer support from trained stylists, and a sophisticated, custom manufacturing setup that combined make eSalon a truly differentiated company.

When a new customer signs up for the service (or even an existing customer wants to change their hair color), the process begins with a detailed questionnaire that covers demographics (age, ethnicity, skin color, eye color), the current state of the customer’s hair (length, color, recent treatments), and the desired look. Customers are then asked to submit a current photo for the company’s stylists to review to ensure that information was entered accurately and to avoid any unexpected outcomes – like orange hair.

From this information, the company distills the option possible outcomes – for example it won’t offer a person with jet black hair a natural, blond final color – and ultimately designs a custom formula and application process to achieve the desired result. This information is fed to eSalon’s custom manufacturing line that combines up to 13 ingredients including colors, tonors, and so forth, to create a custom color formula that arrives at the customer’s doorstep – in the US or europe – in under five days. eSalon has two patents pending on this process and continues to innovate and further refine its process to ensure that it’s able to deliver the desired result to its customers reliably, time after time.

The salon hair color experience is typically superior to at-home options in the quality of products used, the personalized formulations, and the expert application. eSalon has obviously innovated around personalization, and the company claims to use salon-grade ingredients, but it’s perhaps the last area, application, that is the most underappreciated. Every eSalon customer receives custom application instructions unique to their own hair and the specific color formula they’re using. The process is generally approachable and easy to follow, according to Gimenez, and takes approximately one hour.

ESalon’s colors are available in permanent and semi-permanent versions, with the former making up 85 percent of all orders. A customer’s first purchase from the company costs just $ 10. Thereafter each application costs $ 20, plus $ 10 for an additional bottle of color, if necessary for customers with large quantities of hair (seen in 20 percent of orders). The company also upsells shampoos and treatments designed for colored hair, making its average order value in excess in the $ 30 range. Shipping costs an additional $ 5 per order.

Business is booming at eSalon, but the customer demographic might surprise anyone used to teens and millennials dominating online commerce categories. The company’s best customers, according to Gimenez are women of about 50 years old. With grey hairs starting to replace their natural color, these women are the most apt to become loyal subscribers, the company has found, and, perhaps surprisingly, they are at the same time open to buying through a modern ecommerce experience. As a result, it’s not just Facebook that has emerged as a successful user acquisition channel for the company, but Yahoo.com, AOL, and publications like Good Housekeeping.

Unlike shoes, or gourmet coffee, hair color is truly a natural subscription product. For any woman covering up grey hairs, or looking to maintain a look other than their natural hair color, it’s essential to treat their hair two to eight weeks. Users can choose the frequency, and eSalon will make sure that their hair color shipment arrives like clockwork, making the process both more convenient and far less expensive than regular trips to the salon.

The hair color market is dominated by two giant consumer packaged goods companies, Proctor & Gamble and Loreal, which collectively own 80 percent of the US at-home and salon markets. ESalon owns just a fraction of this market today. But the company’s products are growing in popularity, and awareness, so much so that even affluent women with no price sensitivity and those with complicated hair are regularly “cheating on their stylists” and coloring their hair at home.

It would seem that these larger competitors could easily crush that relatively diminutive eSalon, should they so choose, but Gimenez is genuinely unconcerned about this prospect.

“We spent two years doing R&D alone and have spent another four years refining our algorithms and our processes,” he says. “Plus if either of the majors tried to duplicate what we’re doing it would create too much channel conflict for them. I know they’re aware that we exist, but for now we’re too small for them to care. I don’t think that there’s much they can or will do about us.”

eSalon is just beginning to focus its attention on the overseas markets, beginning with the UK. The company already receives a significant number of orders from this region, despite not having a localized version of its website. That’s set to change in Q4 when the company will launch eSalon.uk where prices will be presented in £ and messaging and branding will be geared toward the local audience. Gimennez believes that the broader European market is comparable in size to that of the use, and just as importantly, consumers there face the same issues in terms of price, accessibility, and quality of their current hair color options. With four years of experience under its belt growing in the US market, he’s betting that eSalon will be able to colonize Euorpe at an even more rapid clip.

In a story full of rarities, one of the most unique things about eSalon is that it’s avoided raising venture capital to this point. The company has taken in $ 9 million in funding to date, more than half of which has come from its founders, with the balance coming from individual angels who either worked at or invested in PriceGrabber. The company has access to as much capital as it needs via these channels, Gimennez argues, adding that the flexibility and independence offered by this financing strategy has been a major factor in the company’s success to date.

If eSalon were to one day raise institutional capital, it would follow in the footsteps of another local bootstrapped success story that emerged out of an win in the ecommerce sector. ZipRecruiter, which was founded by a team with previous wins at CitySearch, Stamps.com, Rent.com, Pictage, and MyLife, recently shed its bootstrapped label taking in $ 63 million in its first round of outside financing. ESalon is surely getting similar attention and could surely raise its own growth round should management ever choose that route.

Hair color may not seem like a natural or terribly sexy category for startup-style disruption. It’s an even more unlikely category to be disrupted by a bunch of men. But eSalon has gone further than simply tossing existing products into a monthly delivery bundle or using flashy branding and online marketing to build a loyal following. It’s a rare combination of chemistry, hardware design, machine learning, and ecommerce expertise, not to mention its deep domain expertise in the hair care sector.

Difficult as it may be to place eSalon into a predefined startup box, one thing’s clear: This company has delivered real innovation and, judging by the market response, it’s only scratching the surface of its potential.

eSalon (www.esalon.com) is the first online service for professional DIY hair color that is reinventing the way women color their hair at home. We offer individually blended, salon quality hair color for complete gray coverage with professional results. Each hair color order is personalized by our team of expert colorists, and then delivered directly to a client’s door. Headquartered in Culver City, eSalon is privately held and offers its products in the US, Canada and the UK.

Michael Carney is a West Coast Editor at PandoDaily, covering venture capital, financial technologies, ecommerce, the future of television, and a variety of other subjects. He has spent his career exploring the world of early stage technology as an investor and entrepreneur, working in multiple countries within North and South America and Asia. He is an enthusiast of all things shiny and electronic and is inspired by those who build businesses and regularly tackle difficult problems. You can follow Michael on Twitter @mcarney.